Terminating problem 401(k) plan and starting a new 401(k)

[Trekker]

A 401(k) plan has audit issues going back several years. DOL suggested terminating current plan and starting clean with a new 401(k). We feel the successor plan rules would require deferrals to be transferred/merged into new 401(k) and not distributed.

Would the problems associated with the old plan also transfer/merge to the new plan? These are not problems with the deferrals themselves but rather other plan issues.

Thanks.

[QDROphile]

Generally when you merge plans, the survivor inherits the historical problems.

[MoJo]

Been there, done that (sort-of). I used to work for a service provider/trustee that did work for a LARGE corporation that did a lot of acquisitions. They "typically" merged plans into their "main" plan when they did an acquisition - UNLESS there were "unresolved" or "unresolveable" issues - in which case they merged the "bad" plan into a "frozen" plan (we internally referred to this plan as the "dirty plan") and kept both their main plan and the dirty plan up to date. ALL employees (including acquired ones) only participated in the main plan, but may have also had balances in the "dirty" plan. As long as no plan termination or other distributeable event occurred unique to the dirty plan, operation of the main plan was unaffected by successor plan rules.

While the DOL rep clearly was mistaken when they said "terminate" - if they had said "freeze" it would make some sense (albeit at the cost of maintaining two plans)

[jpod]

DOL said to do this?

[Trekker]

Correction - I just spoke to the person in our office who had the unofficial conversation with the DOL. The DOL did not say terminate and start a new plan. They stopped at terminate. Period.

We will consider QDROphile's and MoJo's responses, which seem to be spot on. Thanks everyone.